"All-Risks" is the most common form of cargo insurance. An "All-Risks" policy insures approved general merchandise against risks of physical loss or damage from external causes. Approved general merchandise includes new packaged goods listed in the commodity schedule. "All-risks" policies, however, do not cover all losses possible in the course of an international shipment.
All-Risks coverage protects cargo in transit from door-to-door. This means the cargo is covered from the time it leaves the shipper's door until it arrives at its final destination, as long as it is not taken out of normal course of transit by the insured. Consider the following transaction:
Cargo leaves Dallas for transit to Houston Upon arrival in Houston, the cargo is loaded on a vessel destined for Singapore Upon arrival in Singapore, the cargo is loaded on a feeder vessel for transit to Indonesia, its final destination If the shipper purchased all-risks, warehouse to warehouse insurance, the cargo would be covered from the time it left Dallas until it arrived at consignee's door in Indonesia.
This is the most comprehensive type of transit insurance available. However, it is important to remember that this broad coverage maybe negated by the terms of the sales contract. For example, goods being shipped CIF Hamburg are insured by the seller until the cargo passes over the rail of the vessel in Hamburg. Any further transit within Germany should be insured by the buyer as the seller no longer has an insurable interest in the cargo.
| 1 | Improper packing |
| 2 | Abandonment of cargo |
| 3 | Rejection of goods by Customs |
| 4 | Failure to pay or collect accounts |
| 5 | Inherent vice (infestation or loss due to the nature of the product itself) |
| 6 | Employee conversion or dishonesty |
| 7 | Losses due to delay or loss of market |
| 8 | Loss amount in excess of policy limits |
| 9 | Losses at port city more than 15 days after discharge of cargo |
| 10 | Losses inland more than 30 days after discharge of cargo |
| 11 | Losses in South America more than 60 days after discharge of cargo |
| 12 | Barge shipments |
| 13 | Goods subject to an on-deck bill of lading |
| 14 | Losses caused by temperature or pressure (air shipments)_ |
| 15 | Failure to notify air carrier of preliminary loss in timely fashion. |
| a) Obvious damage - 7 days | |
| b) Hidden damage - 14 days | |
| c) Non-delivery - 120 days | |
| 16 | Used goods |
Free of Particular Average (FPA) Coverage, American Clause
Sometimes because of the nature of a product or because of the shipping conditions, only limited coverage can be obtained. FPA, Free of Particular Average, is a limited coverage that usually applies to used merchandise, waste materials, and goods shipped subject to an on-deck bill of lading. It covers partial and total losses due to specifically named perils like stranding, sinking, burning or collision of the vessel. While FPA is not a complete as "all-risks" coverage, it is better than having no insurance at all.
A good way to remember this coverage is "the only losses that are covered are specifically named." When your shipper has a commodity not very susceptible to loss except for catastropic causes, FPA is a cost-effective insuring option. The shipper will have protection for a catastrophe and for General Average, should either occur.
| FPA Perils Covered | Partial Loss Coverage | Total Loss Coverage | |
| 1. | Heavy weather, lightning, barratry of the Master or Mariners, assailing thieves | Not Covered | Covered |
| except | |||
| While on deck if a direct result of standing, sinking, burning, fire or collision | Covered | Covered | |
| While underdect, if the vessel strands or is burnt during the insured voyage or if loss or damage can reasonably be attributable to fire or collision | Covered | Covered | |
| 2 | Fire or explosion | Covered | Covered |
| 3 | Vessel or craft being stranded, sunk or burnt | Covered | Covered |
| 4 | Accident to an air or land conveyance | Covered | Covered |
| 5 | Collision or contact of a water borne conveyance with any external object (ice included) other than water | Covered | Covered |
| 6 | A General Average sacrifice | Covered | Covered |
| 7 | Bursting of boilers; latent defects in hull or machinery | Covered | Covered |
| 8 | FAults or errors in the navigation or management of the vessel (within the meaning of Section 3 of Harter Act)0 | Covered | Covered |
| 9 | Discharge of cargo at a port of refuge or distress | Covered | Covered |
| 10 | Fumigation of the vessel, dock or wharf while the merchandise is aboard or on docks or wharves | Covered | Covered |
| 11 | Washing overboard or jettison | Covered | Covered |
| 12 | While ashore, sprinkler leakage, earthquake, cyclone, hurricane, collapse of docks and wharves and flood (meaning the rising of navigable waters) | Covered | Covered |
| 13 | Total loss of any package during loading or unloading from the overseas conveyance | Covered | Covered |
With Average basically extends FPA coverage to include protection from damage caused by exceptionallly heavy weather. Both FPA and WA are often extended to include theft, pilferage and non-delivery. Please contact Roland Int'l Freight Services for assistance with these alternate coverages.
The following is a comparison of perils and whether they are coverd under FPA, WA, or All-Risk Coverage.
| Peril | |||
| Collision or contact of the conveyance with external object | |||
| Discharge of cargo at port of discharge | |||
| Fire and Explosion | |||
| General Average and Salvage Charges | |||
| Jettison | |||
| Overturning or derailment of land conveyance | |||
| Vessel or Craft stranded, grounded, sunk or capsized | |||
| Earthquake, volcanic eruption, lightning | |||
| Entry of sea, lake or river water into vessel, craft, container, etc. or place of storage | |||
| Total loss of package lost overboard, or whilst loading or unloading from vessel or craft | |||
| Washing Overboard | |||
| Breakage and other physical loss or damage from any external cause | |||
| Contact with other cargo | |||
| Deliberate damage or destruction | |||
| Fresh Water | |||
| Hook damage, mud, grease | |||
| Improper stowage by shipowners | |||
| Non-Delivery | |||
| Pilferage | |||
| Ship sweat, steam of hold | |||
| Theft |
An important step in determining the cost of insurance is to determine the insured value of the goods being shipped. To determine insured value, please use the following calculation:
Invoice Value: | $ 10,000 | |
Freight Charges: | + $ 2,000 | |
Sum | $ 12,000 | |
+ 10% (CIF + 10%) | + $ 1,200 | |
Insured Value | $ 13,200 |
Once you've determined the insured value, the next step is to calculate the insurance premium. You will determine the appropriate rate to use based on the origin and destination of the cargo. Then, utilize the following calculation:
Insured value (from above): | $ 13,200 | |
x Insurance Rate: | x $ .20% | |
Insurance Premium: | $ 26.40 |
Should you underinsure the value of your goods, it will have a direct impact on the amount you will receive if there is damage to those goods. Consider the following example:
Shipper has a $25,000 shipment of t-shirts they want to insure. However, to save money the shipper tells their forwarder the insured value of the goods is $15,000.
Consider two scenarios:
$12,000 of damage to the t-shirts. Actual invoice value is $25,000. The shipment was only insured for 60% of its value ($15,000/$25,000). Therefore, the insurance company will only pay out 60% of the loss amount or $7,200.
$25,000 of damage to the t-shirts. Actual invoice value is $25,000. The shipment was only insured for 60% of its value ($15,000/$25,000). Therefore, the insurance company will only pay out 60% of the loss amount of $15,000.